The Diffusion of Policy Innovations

By Jean-Robert Tyran and Rupert Sausgruber

What causes a government to adopt a new program or policy? Despite a large number of empirical studies available to date, the relative importance of various determinants remains obscure because of difficulties of statistical identification. We present an experimental setting to study the diffusion of policy innovations in the laboratory. Our approach discriminates between experimentation, experience, and emulation as determinants of policy adoption. The policy innovation we study is an internalization tax to mitigate a local market externality.

Our approach to policy diffusion is novel, and has important advantages over other modes of empirical investigation. In particular, we unambiguously identify the role of information flows in policy innovation by applying experimental techniques. However, unambiguous identification of causal effects calls for limiting the complexity of the experiment. Our study should therefore be seen as a first application of experimental methods to policy innovation, and, building on this study, future experimental investigations could use richer designs. While our experimental study is explorative in nature, we believe that the experimental approach to policy innovation usefully complements field studies such as event history analysis (EHA) and simulation studies.